Hermann Peterscheck I used to help make video games at Riot Games. He’s now semi-retired. He reads, make occasional investment decisions and manages Hypernormal Capital.
He is my go-to expert in the gaming industry. We talked about Nintendo, League of Legends, Games Workshop, TenCent and more.
Hi everyone. I’m going to be talking to Herman Peters. Checked. Herman, uh, started off as a programmer in the early two thousands and ended up, uh, as a very early employee. I believe it was number three, but I may have that wrong at riot games where he worked on a game, that game called league of legends. I have not played it very often, but I know that some people like my son know a lot about it and, uh, he spent the best part of 10 years or a little over 10 years at Ray games and experienced the acquisition by 10 cent, became part of the senior management of riot and 10 cent. And um, so as a really fascinating perspective on Chinese companies, the gaming industry being acquired and a whole bunch of models of the world that I don’t have. And so that makes Harmon particularly interesting for me to speak to. After 10 years at 10 cent, Harmon decided that life wasn’t that interesting, uh, at riot slash 10 cent and he left independently wealthy and he moved to Northern California, uh, in a place where there are very, very few people. And so I’m going to talk to him a little bit about that decision. And he’s also recently started a fund, uh, but not investing in the gaming industry. So I’m going to find out a little bit about that. Uh, that’s going to be fun to you. And then,
Guy Spier (00:01:41):
thank you everyone. Uh, you’re here with a guy spear and I’m talking to Herman Peter’s check, who was the number three employee at riot games, at least the story. That’s the story that I tell about Herman and, uh, he’s had one of the shortest but most successful careers of anybody that I’ve ever met. But rather than me introduce you, let Herman you introduce yourself to the listeners.
Sure. Yeah. Um, like you said, my name’s Herman Peter shack. I think I was technically employee. I looked it up actually. I was employee number 69. Um, which, you know, the company’s, I don’t know, probably 2000 or something now. So two, uh, three 69 is roughly the same. Yes. I currently live in a little town called Guatemala, California. It’s about, uh, three, three hours North of San Francisco.
Speaker 4 (00:02:31):
And yes, I recently started, uh, my second, or I guess maybe depends on your County, how you count it, third career, uh, as full time investing, which is, you know, what I enjoy doing now. Um, yeah, so, uh, in terms of riot, um, that was my last sort of real job. I guess. I don’t, maybe I’ll have another real job again in the future, who knows? But yeah, I think, um, I think I’m out of the normal working,
Guy Spier (00:03:00):
uh, at the time that I met you Herman, uh, you were still working at riot games, but you were kind of asking yourself why you should continue working there. While at the same time I, I felt like you were dealing with some really interesting management issues, but before we get to that actually made me a little envious. Maybe you can take us to the very beginning of your career. How does somebody get to be employee number? Well, less than a hundred at a major gaming company that for the listeners interests then got acquired by 10 cent. If I understand correctly, you took some cash off the table, uh, when you, when riot was sold 10 cent, but you also managed to ride 10 cents stock price. But before we get into the 10 cents stock price ride and the sale, tell us about how you ended up at riot games and how you ended up in the gaming industry and when you’re at it. Cause I’d love to know, I want to find out how well you can actually program.
Uh, let’s see. Okay, well let’s take those backwards. Um, I’m a mediocre programmer, uh, in terms of technical ability, um, which goes to how I ended up in the gaming business and programming to begin with. Uh, I’m not a, um, naturally self disciplined person. And by that I mean my brother is, and so by that I mean my brother is incredibly good where if he doesn’t want to do something but he has to do it, he will apply almost equal energy to it as if he did like it. If, if I don’t want to do something, I apply huge amounts of energy to procrastination. If I want to do something, I will focus on it 20 hours a day. Uh, and that’s it. It’s a, it’s a, it’s a blessing and a curse. And I’ve been struggling to moderate it, but that’s sort of it.
So how I ended up in the gaming industry is exactly that. When I was a little kid, I loved playing games, but I also had this intense curiosity about knowing how they worked. I wanted to understand how, how, how is it that I moved this little joystick or push the key and these things happen and my parents fed that they, you know, would get these early on personal computers, the Tia 99, uh, Commodore 64, Atari 800. These were sort of the first programmable computers. And my dad would just bring home these to me, uh, cryptic programming books and I would just copy the programs, you know, and, and try to make them work. And I would spend, you know, in school was of course a huge problem for me because I was like, damn, I have to go to school. It’s getting in the way of me learning how these programs work.
I wish it would just all go away. That’s sort of my relationship with school for much of my time growing up. Um, and so yeah, that’s what I would do. And then, uh, at that time there were these magazines, these and inside the magazine, the gaming magazines would be code for that. You could write. And I would spend my summers writing those and trying to figure out what they did, you know, and I was a little kid, so I’d be like color 12 that probably does something, what happens if I make it 13? And I’d run it again and see what changed. And by doing that, I would kind of a process of elimination, learn how stuff worked. And I was just, I don’t know, there were, to me, there was something incredible about, and it’s still incredible to me today that you can have an idea in your head
Speaker 5 (00:06:25):
if you know how to, if you know enough things or have enough tools, you can make that ideal idea real on the screen for other people to, um, experience. And there’s, to me, it games is the ultimate expression of that. Like in books, you can do it as a solo act, but it’s only through words. You can read it and imagine it in your head. Um, movies has it, but it’s linear games is like, it’s, it’s all of your, uh, it’s all of your senses except I guess smell. They haven’t figured that out yet, maybe, thankfully. Um, but it’s, you’re also a participant. And that to me was just, if you want to change the laws of physics in a game, you change it. If you don’t like the way time works, you change it. If you don’t like scale, you change it. You can make whatever you want.
And this was just incredible to me that you could do this. And so I’d make these little games and they were terrible. And I, I bring my, I have my friends sometimes come over and be like, Hey, check out this thing I made. And they’d be like, this sucks. Let’s play, you know, something good. And that exposed me early to how hard it is to make things that are fun. Um, and that I know that kind of stayed with me throughout high school and then college, I was always sort of doing stuff on the side, tinkering on the side.
Guy Spier (00:07:40):
And so yeah, go ahead. But you know, if I, I enjoyed playing games, you know, I remember playing pong on an Atari or [inaudible], which was a British computer. But um, yeah, exactly. But I, I never have the idea that I’d make my own games. Why, why would somebody like you who enjoys playing games end up writing your own games? That by the judgment of your friends were not very good games anyway?
Uh, I don’t know. It was just an impulse, you know, it was, that’s what I wanted to do. And it um, you know, when you were asking about career, um, people have asked me that from time to time they ask for career advice or whatever. And it’s probably a really terrible answer, but my answer is don’t. I spend zero time thinking about my career and when I had a career people would ask, you know, sometimes cause it at Bryant I sort of, you know, grew up, it grew up underneath me, which is what happens with high growth companies. I’m not suggesting that people at the top of high growth companies don’t belong there. What I’m suggesting is whether they do it, they don’t, they usually end up there because the company, it tends to be upper out. Like you either scale the organization, you get kicked out, um, or you leave. And so it grew up underneath me and so it suddenly would have all these people that would be like, how did you, how would you manage your career? And my answer was always like, I’ve never spent five seconds thinking about managing my career or how I get ahead or how I get raises or titles. I don’t think about that. All I think about is what do I like working on? Who do I like working with and how do I get there? That’s it. It’s really that simple.
Guy Spier (00:09:24):
And it sounds to me like you’re an example of somebody who found you, found something that you were passionate about early and it must be in the story that, uh, people who wanted to build great games could see that you were passionate about building great games. And so it was a no brainer to have you on their team basically.
I mean, it was hard to get into the gaming industry and I think it should be, um, because you know, it’s one of the industries where there’s a much greater supply than a demand even today. I think. Um, so how I got in was I’ll, I’ll, I can take you through the steps. So I liked working more than school always. So when I was going to college, this was in Colorado, um, a friend of mine was like the manager of a little Caesar’s pizza. And I wanted a job cause I just wanted to work and understand how, you know, make money. So I got, he gave me a job and my approach to work has always been, um, the best way I can describe it is I’m persistent, but I’m lazy. So I want things to work well, but I want to apply, uh, less effort for Mo for most outcome.
And so I saw lots of things at the store that seemed incredibly inefficient. You know, I was working like I, I’ll give you a specific example. Like I was, we had to scrub this sink and pizza dough sticks. It’s really nasty and they had the scraper and you scrape it down and I didn’t want to do that cause it took forever. So I figured out that it’s this big round sink. Um, if you fill it with water and you put like this cleaner and it was like toilet bowl cleaner in it and you create this huge vortex, it like pulls all the, all the pizza off the edge. So, you know, that made my job really easy. And so I was just constantly looking for little shortcuts like that because you know, in school you would get punished because you weren’t doing it the right way.
If you have the right boss at work, they’re like, wow, you’re making things better and you get rewarded. But I did some stuff that the owner of the store didn’t like and I didn’t want to work there anyway. I went where I really want it to work was electronics boutique, which was, you know, they were acquired by GameStop years and years ago. And so I would hang out there, you know, and by hanging out there, I got to know all the people that work there and then eventually you can get a job. It’s not a huge trick to get a job in retail, but once I worked there, I was like, aha, now now they let you take games home. So now I have this really way to play lots and lots of games. And so I started writing reviews for games and just blindly submitting them to game magazines and probably dozens of these things.
And I got like maybe two replies back that were just negative, right? They were like, no thank you. Please stop talking to us. And then one day I did a review on a game. It was called, I think shivers or something. It was like a Sierra adventure game. And the editor, I guess the person who was supposed to write the review, uh, didn’t. And so they had a need for it. And so that got published and that was super exciting for me. But what really mattered was I met this guy at, um, inside the store and he, uh, he would come in every month and buy like 20 games. And I was like, who the hell is this guy who buys like every game? You know, what’s his, what’s his incredible dream life? You know? Uh, and he, he was a, um, he was in, uh, a senior editor for a big German gaming magazine called PC games.
His name was Marcus Christian, and he was like one of the top like game reviewers in Germany. He just happened to live in this town. And so I started talking to him. I speak German, so we would talk a little bit. And then one day he was like, Hey, you know, we’re doing these, this is mid nineties. So, uh, CDs were starting to get put on the fronts of magazines and he had this idea that was really innovative at the time. They were going to do a behind the scenes how games get made movies and put them on these, on these CDs. Um, and to do that, you need to go up to the studios and film them and interview people. And he said, Hey, do you mind? I can’t make it tomorrow. We’re going to go, we’re going to do something. Can you go up to I, it was first Sierra dynamics, so I think they were in Eugene, Oregon.
And he was like, Hey, can you go tomorrow or the day after tomorrow and you know, go up there and do this and film them and talk to them. And I was said, yeah, of course I can now, I don’t know how to film or interview or do any of that stuff, but I sure as hell wasn’t going to say no to that chance. And that ended up happening for a couple of years. Um, and we went, you know, I got to visit blizzard, I got to visit origin, I got to visit looking glass. Like all these companies whose games I played in meet all these really cool people. Um, and that’s sorta helped with networking. Um, and I got to learn a lot about how games got made. Um, and this was when blizzard was like nothing. I think they were like 50 people.
So they were, they were, they were, um, riot at that time. And, uh, so that went well and then it fell right off the edge of the earth, uh, because the internet was just getting going. So 98, 99 suddenly, um, I got to watch firsthand as the gaming magazines got absolutely disrupted by the online gaming sites. And literally within a couple of years they were finished, you know, and with them when us. And so suddenly I didn’t have that job anymore. And then I got a job at a web software company. Did that for awhile and I could tell that story, but we’ll skip that. And then eventually, um, uh, through, through working with Marcus, um, I knew a guy who had a multi, a massively multiplayer game company, and I joined that company and I was there for I think eight or nine years, um, before joining riot. So I haven’t had that many jobs. I don’t jump around with jobs a lot. I make those decisions. Um, even though, you know, I’ve kind of said, ah, just kind of do whatever, but I’m pretty decisive when I joined someplace, I tend to stay a long time and I can tell you right in particular if you want.
Guy Spier (00:15:39):
Yeah, well was I right or is it correct to characterize that sort of, you know, you have a passion and other people found that and therefore it was kind of destiny. Is that the right way to talk about it?
I mean, I don’t know. It feels that way in retrospect.
Guy Spier (00:15:57):
Did you ever, you know, there’s an interesting story. Somebody’s, uh, uh, so, um, you’re on the Eddie groggily who’s the, who runs a firm called Capricorn, happened to be a roommate with, um, Jeff skull, who’s the founder of eBay. And the hilarious thing is, is that apparently Jeff Scott, his friends were telling him, um, Hey Jeff, stop, stop, uh, finding ways to trade Furbies on the internet and go do something serious with your life. And did you ever have people who sort of said, you know, when Herman, are you going to get serious, stop messing around with that stupid gaming stuff and go get a real job, go become an accountant or a lawyer or something.
Um, I’m sure, uh, and I ignored it. Um, but I always kind of ignored that. I mean, I don’t know. Like I have a kind of, it’s funny, I have kids now and I can see it a little bit in them. Uh, and now I’m on the receiving end, but I w I feel like I’ve always been sort of a, uh, I don’t know how to describe it. I guess it’s sort of like an intellectual terrorist, you know, I remember, and I might be misremembering, but I can remember it. Uh, I think it was in fourth grade and penmanship was a class in fourth grade. And I have terrible penmanship and I don’t care about penmanship. I don’t care that my penmanship is bad because I think it is of no matter. Um, and, uh, my fourth grade teacher was like, well, you know, you have to focus on getting better at it, don’t you care?
And I basically said, no, I don’t really care. And she was like, well, why not? You have to write well to do well in the future, like one of these speeches. And I remember saying something like, well, when I get that age, everything’s gonna be written on computers anyway. Like what do you do with a kid who says stuff like that? And so I’ve always sort of been like, uh, you know, if worst comes worse, I feel like, you know, even likes to let’s imp unemployment today, 25%. Right? Okay. So if I’m starving, I’m pretty sure I could get a job at an Amazon warehouse. I think I could make that cut. Um, and I could scale my life down so that I could live like that. So for me, like the fear of, of, of not being able to survive or something is not very high. And so therefore I may as well pursue what I want to do. So this idea that like, well you can’t make a living in games. Yeah. But who cares about that doesn’t matter what you should pursue, what you want to pursue.
Guy Spier (00:18:26):
You know, we’ve all heard it so many times, but I don’t know how many people actually have the courage to do it because it requires you to be able to handle the downside to say, yeah, this is the downside. And I’m okay with it. It makes me think of a talk that Tim Ferriss gave at one of the Ted conferences where he talks about fear mapping because if you can map out your fears and if you can kind of think them through and take it, you either see that many of your fears are unjustified, will never happen, or they can be, um, uh, accounted for and you can do things to mitigate those fears. Uh, then, then you have a better time when the going gets rough. And you seem to have found it innately. You didn’t, you didn’t need a pep talk from Steve jobs at Stanford graduation or something about calligraphy.
Great. Uh, yeah. It’s funny though because I think of it more like people are scared of the wrong thing. You know what scares me? What scares me is I’m however old, 80, 85, 90, I don’t know how long I’ll live. Right. Um, and I’m laying there in bed and I go, fuck, I really should have tried to do the stuff I wanted to do too late. Now that scares the hell out of me, you know, cause how many, how many times do you hear about like a person is at the end of their life and they say stuff like, gosh, you know, I really should have spent more time climbing the corporate ladder. I blew that. No one’s done that, you know? And so, um, yeah, I think that’s, that’s what you should be afraid of. And honestly, uh, by the way, you know, if you look at the, his, the whole, the history of humanity and you imagine how many billions of people have been alive, the percentage of people that even have an opportunity to try to do what they want to do is vanishingly small.
Even, like if I was born today, let’s say somewhere in Calcutta and I just have to survive, I’m not going to have the luxury of pursuing a career in the game development industry. Like that’s, I mean it’s much, much harder. Or you know, if I’m in Sudan or something, I’m going to be worried about these locusts, they’re about to wipe out my country and start to cause massive starvation. So I think anybody who lives in it in a place where, or in a time where they can pursue what they want to do, I mean it’s kind of a waste to not do that.
Guy Spier (00:20:49):
Yeah. But people do waste it in any case. Tell. So, um, before we get onto more fun stuff, um, tell us briefly about the, uh, journey or majority is not the right way to put it, the meteor meteoric, however you want to describe it, your time at riot games, how it started, how it ended, where you went and where riot games went.
Yeah, I mean, I, um, the games industry is very small, so generally you kind of know everything that’s going on. If you’re in it for a little while. And I was always in multiplayer online games and that’s an even smaller subset. So I wasn’t in consoles, I wasn’t on, um, I never made a conflict. I never worked on a console game. Um, so that divides it even smaller. So I knew the founders of riot, Mark and Brandon before, I think a couple of years before, um, joining riot. And they always had these like really they put on really cool parties even when they were small. And that was interesting, but I just loved how much they, they had so much passion for what they were making and they had no idea what the hell they were doing. Which to me is like a magical combination.
When you see it, that’s a really good sign because it means that you don’t know, you’re likely to do things accidentally the right way because you’re going to avoid the stupid mistakes that everybody’s making because that’s how everybody else does it. Um, that’s how my mind works. Right? And so I was always kind of aware of what they were doing. And you know, uh, the situation at my, where I was working kind of changed in terms of company ownership and the way that I wanted to work was evolving pretty quickly. Um, and it no longer meshed with the, the model that other people, the publishers of, of, of the stuff we were working on wanted to work. And so I started looking around for other places to work and then I looked at a bunch of places. I tried to, I tried to apply to blizzard. They never really got back to me, um, which is pretty normal experience. Uh, and then, uh, I applied to a bunch of other places and it was just a timing thing. And the two places I ended up interviewing pretty seriously were Zynga and, and riot. And at the time I’m, how old was I?
30 something. Right. So it must’ve been 2009, so I was 33, I think. Um, and I was thinking like, you know, I’ve been working a long time and nothing I’ve done has ever been, I’ve never been part of anything successful. And that’s just the way the games industry is. It’s just most people will spend their careers and never launch a game that is successful. So you better like it. And I was okay with that, but I was thinking, I was like, you know, Zynga is going to, this was before Zynga IPO. Zynga is going to be a very successful company. Right. They were bigger than Facebook at the time. Remember Facebook was a vector for Farmville. Um, back then it wasn’t a vector for you to yell at your friends. Um, so I thought for sure, and Zynga was like, when I interviewed there, it was some of the best interviews I’ve ever had, some of the smartest people on the planet work there. Um, and I think you knew Mark Pincus or you know him or something.
Guy Spier (00:24:06):
Yeah. Have we had this conversation before?
No. I’ve heard you say that like you were a roommate with him or something.
Guy Spier (00:24:13):
So, so Mark Pincus is class of 93 each. Harvard business school. He was in my section we hung out for, for in my second year. I got to know him. Uh, he and I together bought Philippine long distance. That was one of the first stocks I ever bought. And, um, and we worked on a project on creating new healthcare ventures. So yeah, he was, he’s a, a brilliant and unusual guy. So you, you must have interviewed with him as well.
First time I interviewed there, I did not interview with them. And, and here was, here was my dilemma in my head, right? I interviewed at riot, super smart, incredibly passionate people, likelihood of success, vanishingly small. They’re building this super hardcore game. They’ve never made a game before, right? They’re aiming at a niche on purpose. They’re basically saying like, we’re building a game for a small number of people that are gonna really love it. Whereas everybody else is trying to make a game for everybody. Right? Um, and they don’t care about that, right? So I’m like, okay, you know, the game’s going to be fun. I can play it. It’s fun, it’s going to have an audience that’s going to love it, but that audience is always going to be small and maybe game too could be successful. This was my thinking on riot. Um, my thing on Zynga was they are going to explode.
They’re going to get bigger and bigger and bigger. Maybe they’ll, you know, you know, they’re going to IPO. So any options I get are going to be like gold. So the question for me was like, but I, but I don’t really love the games they’re making, right? So I’m like, do I sell my soul a little bit? Not completely, but do I go do something I’m not super passionate about and just for once be part of something successful or do I go to this startup that I’m going to love working for, but it’s probably never going to, you know, really, um, succeed. Uh, and at the end of the day, I just, I had to go to the place that I thought I would love working at every day. Fortunately, you know, when you look back at that 10 years later, the outcome is reversed, which is kind of unexpected and you know, to my benefit personally, but like there was no strategy. It wasn’t like I thought Ryan was going to be this rocket ship. And in fact like when I joined, when I joined, the game was about, I think it was about to launch or it just launched. So most of the development was done, you know, I guess the company was kind of out of money. So some point you just kind of, you kinda, you kinda, you have to launch, right. And literally from day one the, the growth was crazy, you know, I remember in, um,
Guy Spier (00:26:56):
and, and just for the listeners, um, perspective, the number one product or game of, of riot is league of legends.
Yeah. Right now.
Guy Spier (00:27:05):
And, and if we just started let, just to give a sense of what, uh, the user base is. Revenues hours played per week.
Um, I don’t, I don’t have the numbers off the top of my head anymore, but approximate. But for many years, um, it was the numb or, and I think it still probably is the most played PC game on the planet. Um, just to give you an example, I’ll do a number. I do not off the top of my head is like, uh, since we launched in Korea, I think aside from like a few months, we’ve been the number one game in played in PC cafes in Korea by time. And I looked just like the other day and I think to this day it’s still like 45 to 50% of the hours played in Korea is league of legends, you know,
Guy Spier (00:27:49):
so. So, um, how many people in the, on the planet play league of legends say in any one week?
I don’t know. Let me look it up real quick if you want me to. I don’t want to, I don’t want to misspeak, but it’s like, you know, hundreds of millions of people that played it.
Guy Spier (00:28:04):
Hundreds of millions. Yeah, there’s just order of magnitude.
I mean, you know, 10, uh, let’s see, right now I look at the internet. 80 million is what it is. The active player base and that sounds, you know, roughly correct. And uh, you know, you have to look whether it’s in China or not because of course the game was, was very huge in China. But the, but the go ahead.
Guy Spier (00:28:27):
And what is the revenues of riot games approximately when you left?
I don’t, I, I’m not going to disclose that. I, cause I don’t, I mean I, I kind of roughly know, but I’ve, yeah, I don’t want to say cause it’s, it’s a, it might be 10 cent might disclose it a little bit, but I don’t wanna I don’t want to reveal anything that, um, that the company doesn’t want to put out there. It might be out there, I’m not sure.
Guy Spier (00:28:49):
But basically you’re talking about a business that, you know, you’ve got 18 million eyeballs and you have some, some small percentage of their spending power and your costs are fixed. Basically.
You can, you can probably reverse it out. But like if you think about like the company had one game that was live for, you know, over 10 years now. So it’s a 10 year old game that was paying for the, the, the development of that game and the distribution of it plus the development of other games that are now coming out across multiple offices, many thousands of employees, uh, and was incredibly profitable. So you can, you can probably, I mean it’s, it’s a, it’s a multibillion dollar kind of thing. Fortnite is the same way, right? Like fortnight’s this one game and Tim Sweeney’s a multibillionaire a billionaire now, right. And before fortnight, uh, Epic was struggling. You know,
Guy Spier (00:29:46):
it’s, in many ways it’s better than movies because the movie has a kind of a one off release and then you have kind of the tail of the movie catalog. Whereas in this it’s just continuing. I guess it’s worse than movies in that you just don’t know when the revenue stream is coming to an end. You just don’t know when people are going to get bored of your game basically.
Yeah. I’ll tell you the opposite. When we launched in Korea, cause I was um, I was one of the people kind of responsible for that. Um, there’s like a publishing side and an operation development side. So I was running that operation development side and then an amazing guy, um, uh, was running the publishing side in Korea. And so Korea is a very hard gaming country. Um, games that are on top stay on top forever. Newcomers almost never break in Western games, never succeed there with a very, very few exceptions. Blizzard was always huge there cause they got an early with StarCraft and so we were going to go there and we were, we were self publishing in Korea, which was like, you know, suicide essentially. Um, and so I was very, very worried about how we were going to do in Korea and we had a pretty good strategy.
We were like, okay, maybe we can get into the top 10 by the end of the year and if we can pull that off, that will be like phenomenal success. And I think we were the number one game in six weeks. Um, and of course the, um, if you’re, uh, if you’re a person who on the operation side of the company, you’re really angry because, you know, the people like me were running around saying like, we have to be conservative. We don’t know how fast it’s going to grow. Let’s put in less servers and then your game explodes. And all these guys have to work 24, seven and fly around the world. And you know, it was, it was tough to keep up with the scale. But, um, the game that was number one when we launched there was called Aon and Aon had been number one for I think a couple of years or something and they disappeared within, I think a couple months.
They fell, I think off the top 10 or very low and they never ever came back. And so if the people, and Avon was a great game by the way, right? And so, um, if the people from Avon came to me and said, Hey, Herman, you worked on league, you worked on Korea, uh, what could we do, uh, to defend ourselves? My answer would be like, I have absolutely no idea. Probably nothing. Wow. Um, and so that is how these things are, is just like stuff comes and just wipes you out. I mean, I saw this on the, I was on the, I saw it on the receiving end when world of Warcraft launched, it just sucked all the life out of massively multiplayer games, you know? And so in the industry there, whenever you, if you, if you do any analysis of the games industry, it tends to be analyzed in genres. The MMO genre is this big. The mobile genre is that big. The FPS genre is this big. I think that’s nonsense. The way to really think about it is these three games are huge and everybody else is nothing. Like you don’t want to be the number three mobile, right? You don’t want to be the number four FPS in China.
Guy Spier (00:32:51):
And just briefly, what’s a mobile and what’s an FPS?
So mobile has massively online battle arena. That’s what, that’s what league of legend is. But that word didn’t exist when league of legends launched. Right? The genres are retro retrospective analysis. Right? So a game likely comes out and it goes huge and then everybody makes a copy and they’re all gonna fail or mostly right, because once somebody’s played like to me it’s sorta like, I don’t know why the games industry works that way. Like if I came to you and I said, Hey guy, you know, Coca Cola has been hugely successful for a century, you know, give me a couple of billion and I’ll make something that’s even better. And even if I can get 20% of their market, we will be rich. Are you in? Of course not. No.
Guy Spier (00:33:35):
Well actually that there are so many pitch decks that when I was working in venture capital that I saw, which basically said, this is the addressable market, all we need is 1%. You know, if we can just get 1%. And uh, there’s, so, you know, there, there are two topics that, that I’m going to try and get you to, to sort of like do both. Um, so I, you know, so I want to get to your pivot to investing, which is kind of fascinating, but we need to cover, um, 10 cent. And so maybe you can just, you know, what may tactic, you know, given those dynamics and given the instability on what made 10 cent want to buy you. And
I mean, I can, I, I’m, I’m speculating a little bit, but not completely. Um, so Tencent is probably one of the best, uh, investment holding companies maybe on the planet. And they, people don’t think of them that way because maybe they don’t, they don’t look at them from that through that lens. Um, all of my interactions with 10 cent haven’t been positive, or at least almost all of them. Um, even from the, so from there, from early on, Tencent, uh, we were, we had 10 cent was going to be, um, running the game for us in China from a very, very early time period because in China, China’s the one place where we could not run. We couldn’t publish ourselves. It’s just illegal. Like, you can’t do it. You need a Chinese partner. And Tencent was the best one. Um, so that was already in place before I joined the company.
And so I got lucky about nine months in, we were the Mark and Brandon asked me, they’re like, Hey, we’re supposed to launch in China by the end of the year. We have this deal with Tencent. Can you make, can you get the game launched over there? And it took longer than that. But so I got to work with them very closely on launching the game in China. And it was amazing. I mean, that company is incredible. Um, very brilliant. They work super hard. We had a team that loved the game, they played it a lot. They really wanted it to be successful. So from that perspective it was great. And it was a, it was a hard project. And so I think what Tencent does is, um, you know, at the time it was, we chat wasn’t out yet. It was all QQ still.
And it was growing like crazy. You know, they had a hundred million, 200 million peak concurrent users when I first visited them. And then it went up to three, four, five, six, seven, uh, you know, active. It was unbelievable growth that they had. And, um, you know, they, I guess they probably just have tons of money and what are they going to do with it? And the thing that they just did is they, if they saw something that they thought looked like it was going to be valuable, they bought it. And I think in terms of games, they, they probably, uh, figured that out early. Like I would guess they would have liked to, they, if they could go back in time, they would have just bought all of riot when it was worth nothing. Cause you know, when you wait until, you know, it’s the biggest game on the planet, you pay a bigger premium.
And so, but they also bought a bunch of Epic. Right. Uh, you know, so they’ve, they’ve bought, they also, uh, they also run, um, uh, um, pub G. So pub G fortnight doesn’t matter. They make money either way. Um, and they also learn a lot. So, you know, when you go out and people complain that the Chinese copy a lot, right? Um, I don’t know how that is at other companies, but at 10 cent, what happens is the people who work there are constantly wanting to share learnings and figure out how you’re doing things and they’re genuinely curious because they want to get better, you know? Um, and they will and they are, you know, and you know, it’s just, it’s, the energy was always phenomenal when I, when I went to China. And so I think Tencent was just like, look, we want to be, you know, we don’t want to have these weird conflicts with these companies that we’re dependent on that exists because of this, uh, you know, separate longterm goals because of who owns what.
Right? So there’s riot IPO and then if we IPO now 10 cent has this weird thing where they own a bunch of accompany, that’s another public company and it’s just a pain in the ass, you know. And being a public company I think is also a pain in the ass. So them, them owning from my perspective was fantastic because the other thing that 10 cent does really well at least for ride, I think this is probably generally true cause I would imagine it’s a management philosophy is there was no, there were no like 10 cent people running around it, right? Telling people what to do. They didn’t like descend their management on the company and say, now you’re going to use our, you know, KPIs and our healthcare system, right? It was, we were a completely independent subsidiary from what I could tell. Nothing changed. Um, so 10 years down the road with tens, then you’ve got all this appreciated, 10 cent stock slash options
Guy Spier (00:38:37):
and you might have been the perfect guy to either launch in you game or business within 10 cent or I’m sure you know, so many people you could have done gone and done something else in the gaming industry, but uh, or uh, or a nearby adjacent industry and steady decided to um, to move from Southern California. Uh, and to get into effectively to do a, you know, a step jump away. It’s something completely different. How does that work?
Again, it’s sort of the Herman Peter Shek, uh, school of career management. Um, uh, so I think if you’re gonna just like what I was saying before, if you’re going to be in games, uh, you better really, really want to make them. And it has to be like in your list of things you want to spend your time doing. Number one has to be make the game. And if number one isn’t make the game, you should not be in the industry in my opinion. There’s lots of people I met in the games industry that I wouldn’t say don’t like games, but they have a indifference or you know, whether they make games or a candlesticks, you know, whatever. Uh, you know, and that to me is completely strange because the games industry is terrible. If you don’t like making games, in my opinion, it has like a really like go work for Google.
It’s way more stable. Um, or Facebook and they’re hiring roughly the same people. Like we would get people, we would Facebook and Google poach from us all the time. Right. Um, and so it’s, it’s just weird. But, um, that’s kind of how I felt. And so when I thought about it, I was like, well, I have a young family, so I’m not going to spend my nights and weekends making a game right now because I want to spend time with my kids. So I don’t want to do that. And I don’t want to be in this sort of like, I don’t like management, you know, particularly. So. Um, so yeah, I probably could have started another team and tried to work on a game, but I think without it being number one on the list, the likelihood of success, it drops very quickly. So, you know,
Guy Spier (00:40:48):
even if it’s, even if it’s not number one, even if it is number one on the list, the likelihood of success probably drops quite a lot.
Yeah. So that’s just, I didn’t, I didn’t, I didn’t want to do that. And also, um, so that was, I think the primary reason. And then, you know, uh, I had the luxury of not having to do it, at least for awhile. You know, I could just do nothing for a while. And that sounded really, really good cause I had been working a lot since I was, you know, what 17 or something. So I was like, you know, I could wake up in the morning and drink coffee, look at the ocean, goof around with my kids. That sounds pretty good. I think I can do that for awhile.
Guy Spier (00:41:27):
Changing, changing life priorities. And then so, uh, um, we wanted to get into talking about investing, but I think that what I want to do is let you drive the conversation a little bit more there. But I’ll just start you off with this. Uh, I think it’s from you that I learned about this company. Um, uh, so I’m gonna, I gotta get the world of Warcraft, the British, the British company.
Oh, games workshop
Guy Spier (00:41:56):
games workshop, which, which I have to distinguish from game stop. Yeah. Yeah. So, you know, you’ve described this extremely unusual world, which is extraordinarily unstable because you live in constant fear, well, hot, most of your world lives in the dream of getting a successful game and those who have it live in constant fear of losing it. Uh, does the world of world of Warcraft have anything in terms of the moat?
Well, okay, so games workshop, right? They have a game called Warhammer. That’s it. Yeah. World of Warcraft has a lot of synergy with Warhammer in terms of how the IP looks, but it’s completely different. So Warhammer is this giant tabletop game. Um, you know, and so like, uh, if you, if you understand the, the sort of customer that they have right by giant, I mean, you know, you could play a Warhammer battle map might be, you know, 10 feet by 20 feet, right? So like you have a huge map and these battles might go on for days or weeks and, um, people build these armies and they order these figurines, that games workshop mix. Um, and they ha a lot of people hand paint them. Like that’s part of the fun is you choose your colors and you paint them. So the amount of commitment in this hobby is mind boggling.
Um, and there is no, from my perspective there is, there’s no way anybody can break that mode because why would you get like, you know, a slightly better version of Warhammer or something would make any sense. You have all this stuff built into it and then the way they distribute, they have all these stores are not a lot, but they have many stores and they’re kind of run by fanatics from what I can tell. And so it’s this fanatical, uh, type of experience. Um, and they sell these figurines and they sell rule books and they sell maps and things and it’s a pretty, it’s a pretty good business. But what happened, I think it was in 2015 or something, it was run, I guess by the founder for the longest time. And he did a great job, you know, and it was, it was a successful but pretty flat business.
And then I guess he either stepped back or was, I don’t know exactly what happened. And this new CEO took over and he kind of just pivoted a little bit. He made the game a little bit more understandable, fixed a few of the rules that the fans didn’t particularly like. And they also did a lot more like with online stuff that I guess they weren’t doing and the company just exploded, you know? And I watched it explode, I bought it a little bit and then I sold it like tripled or something. And this, most of the, the top end and now it’s come back down a bunch. So I had to think like, should I invest in it again or whatever. But to me it’s one of those companies that’s like, as long as it’s decently well run by somebody who loves the product, it’s got a remarkably powerful mode, I think.
Um, unlike most of the games actually. Yeah, it’s not, that’s what I mean is like, it’s, it’s, um, yeah, I have, I get into real, uh, um, what’s the best way to describe this? I think a huge trap that is out there for, whether it’s a career or an investor or I would see it all the time whenever we, whenever I would talk to people who were like, um, you know, uh, consultants or analysts or whatever is they start by looking at the world through the lens of, um, some kind of taxonomy, right? So like, because games workshop is, makes a game that’s played by people. It’s like Hasbro, right? Or because riot makes this video game. It’s like, you know, um, Zynga or electronic arts, but that’s sorta like saying because Amazon sells stuff. They’re like, you know, seven 11, which is preposterous, right?
And then the, the mistake gets made on the other end where it’s like, well, Netflix and you know, Facebook are cloud companies. So they’re like in the same thing, even though the business of absolutely. So Warhammer is absolutely not like, it’s not a game company. It’s, it’s a game company in the sense that they have this game. But it’d be almost like, imagine if you owned chess, right? Let’s say you own chess and every time somebody plays chess, you got a nickel that’s a, that is not Hasbro. Right? That’s like a different, and I think they owned something like that, probably not as permanent as chess, but that’s the way I would think about it is like they own something like a game, like chess and there’s a small number of people that play it and they will never stop playing it. And they will never play anything else.
And as long as they can, they can attract enough people to start playing the game. Uh, they have, once they have you, they have you for life. I’m convinced that even during COBIT 19 Warhammer fans are getting together and playing somehow. Do you like paying? Well, I’ve tried it a couple of times. It’s like too much for me. No, like I’m not, I can’t get that into it, but I know people that just, Oh God, they just love it. You know, we won’t tend to, after we spoke to you, we walked into a store in the UK and we watched a
Guy Spier (00:47:29):
game being played and then, um, our son, uh, he, he, I get the sense it’s a little bit like Dungeons and dragons. So we played a game of Dungeons and dragons, which we played about an hour’s worth of Dungeons and dragons and I just couldn’t get into it at all. But you know, uh, I used to think that Harley Davidson, you could, there’s some similarity between that, uh, game and Harley Davidson and that it’s something that people get really passionate about. They get passionate about the brand, they get passionate about the paraphernalia. You can see, keep selling them stuff. But, um, Harley Davidson is going through a pretty difficult time because nobody wants it. Uh, uh, gas smell of petrol driven motorcycles anymore. They don’t want big motorcycles and there’s still demand, but it’s, it’s not a growing product. And you sort of say, I think 10 years ago it was interesting to me because Berkshire lent Harley Davidson money and I asked myself, why would they not have just gone and bought the stock?
Guy Spier (00:48:36):
And Warren was asked that question at the annual general meeting and he just said, okay, you know, I’m not as confident about the Harley Davidson brand. And I just thought, wow, that’s a really powerful brand. What you see is that most marrow brands go away. And uh, I guess I understand. So little of it, I do know understanding from you and being in the store that there are, um, you know, there are like dozens of books that one can read. So there’s a whole folklore around it and maybe, maybe an analogy would be if you could own lawn of the rings, uh, or, um, all of Tolstoy’s works and have figurines and play, play those on some kind of, I mean, it is a kind of a Tolstoy and type, well doesn’t it? Not tall story, what am I talking about talking Tolkien?
Absolutely. Yeah, it comes right out of that.
Guy Spier (00:49:22):
Now, are there any other, just out of curiosity with your sort of like, um, Warhammer type hat, are there any other, uh, kind of unusual businesses that you’ve uncovered that, that where, where people, everybody throws it out with the bath water because they just think it’s generic dot, dot, dot. But actually there’s something unusual going on.
The thing that I find frustrating is I think, I think another example of something like that would be like magic the gathering, right? Wizards of the coast. But, but those companies get, they get acquired or they’re private. So there’s not a lot of them. Games workshop is just one of the weird ones that’s public on its own. I didn’t even know it was a publicly traded company until it popped up somewhere and much later I was like, Holy shit, I’m the only one I can, I can think of. I mean you’ve, you mentioned Rovio, uh, earlier, um, you know, but angry birds is not war hammer, right? It’s not that it doesn’t have the, the even like, even think of game of Thrones, I have a game of Thrones class right in front of me and like, um, is game of Thrones going to be big in 20, 30, 50 years?
Maybe not Harry Potter probably cause they’ve got, you know, theme parks now, but it’s hard. There’s not a lot of those. So the one that I’ve been looking at for a while is, I think we’ve talked about at Sanrio, which is hello kitty. Um, on the, about as far on the opposite side of the spectrum is Warhammer from a content standpoint, but I defy you to find someone who doesn’t know what hello kitty is. It’s very, very hard. Um, and you know, their revenue has been dropping like clockwork every year for I think, five or six years. And you know, it’s just, it’s shocking to me that, you know, you have this massive Verizon economy in Asia. You have this brand that’s ubiquitous and they can’t figure out how to grow revenue, you know,
Guy Spier (00:51:27):
and so now you’re running, suddenly you’re running your own money. You may well be running other people’s money as well, if not now soon. Um, what proportion of it do you expect you would invest in? Maybe a Rovio or,
Guy Spier (00:51:45):
And what proportion of it would it would be invested in companies that are from different industries?
Uh, yeah, that’s a good question. So for good or ill, um, and this is probably constantly changing, not enough, um, in the first group, uh, because, um, it’s, you know, it’s very hard to, or at least it’s very hard for me to, uh, to move away from what is safe because it’s big and old. I’ll give you an example. Like one of the, one of the companies I invested in, I think a year and a half ago was, was general mills, you know, and it’s done very well over that time because there, it’s one of the companies that’s like, Hey, everybody’s at home eating cereal. Well, a year and a half ago there was this whole spiel about kids don’t eat cereal anymore because healthy. And I’m like, I have two kids. That’s total bullshit. Everybody’s going to comfort foods. And you know, the other narrative was like, well, brands of cereal don’t matter because you know, the stores are, you know, people are going to be buying Amazon flakes or something.
And to me that makes no sense. So, uh, they looked cheap and they made it, they made some mistakes with their yogurt so they made a few mistakes and I’m like, okay, cool. I’ll pick up something that’s going to definitely be around in 50 years that somewhat on sale. And so I get that those are the companies I just love, you know? Um, and so because of that, when I find stuff, uh, games workshop was weird because when I saw it, it was cheap. But there’s companies like it, like San Rio is expensive relative to how, you know, their sales and income and everything. So I find it really, really hard to invest in a lot of these companies because, um, they’re expensive. Zynga was another one. I bought some Zingo and they were trading at like $2 and 60 cents. You know, they were like, at one point they were like, if you took their cash plus their real estate, they were almost a net net, which to me was insane because, yeah, sure.
Okay. You know, their game started to tank and once they lost the Facebook distribution machine that hurt them. But there’s a lot of smart people that are working really hard and they have a lot of shots they get to take cause they have a whole ton of cash. They’re going to eventually figure it out and they have figured it out. But I didn’t hold onto it long enough cause it got a little bit more expensive and I was like, cool, sweet, double, I’m out. And so I keep making that mistake and so I think I have to be more, um, uh, I had that, this goes to what I was saying earlier to you about quality over price. Um, I, I’ve changed my checklist from like to having price be slightly more important than quality to going the other way. Um, and I think that might make a difference in, in how I choose to invest.
So I think in the future. So for example, I do own Nintendo now. I bought it, I don’t know, a couple of years ago. Not early enough, but not too late either. And to me Nintendo is another one of those companies where like my kids are five and seven and they are a Nintendo for life has them, right. My son will be playing Zelda and Mario games as long as Nintendo makes them and they aren’t terrible. And Nintendo has now, you know, successfully generationally passed on their core IPS and develop new ones like animal crossing. So they’re not, they don’t have the Steve jobs problem where like there’s one person at Nintendo who has all the great ideas and everybody else’s. So Nintendo has, the problem that Nintendo has from my perspective is they have like the Japanese company problem. They hoard tons of cash and then they don’t give it to shareholders, which is probably good from some perspective.
And like they haven’t figured out how to use their IP very commercially, but I think they’re going to, and I’m willing to wait. Um, I don’t think they’re going to be in console Wars, the console cycle forever. I think they’re gonna. I think that’s going to change. And so I, I should probably have more in intender than I have. There’s a, there’s a couple other companies like that in Japan before we leave Nintendo wasn’t there, isn’t the brothers’ film just come out? They’re doing a bunch of stuff. Um, um, I don’t know. I like, to me a movie games has never worked very well. Like they always, they always tend to be disasters. Um, I don’t know why that is.
Guy Spier (00:56:25):
Well, you know, movies and comics have worked well interestingly enough. So captain America, miss universe, whatever. Um, there’ve been plenty of, uh, successful crossovers from cartons, cartoons to movies for you. You might argue, I really don’t understand the economics well enough that if your Nintendo and you’re throwing off a ton of cash, whatever you can do to, um, to widen that moat, even if it’s a movie that doesn’t do particularly well, that still gets into the minds of some of your users or viewers or the parents of some of the users of the game. So maybe for that perspective, it does make sense to have that.
Yeah. My feeling from listening to what Nintendo people say, um, and their kind of behaviors is I think Nintendo are like, they really worry about diluting the quality of their brand. You know, that’s why they’re so late and small to some degree on mobile phones is like, there’s this thing inside Nintendo. I think that just is in the culture of the company that’s like, remember when video games died in the eighties because Atari would let anybody make anything, right? We’re not going to do that. We’re going to design the hardware, we’re going to design the games for that hardware. We’re going to control the experience and make sure it’s awesome and you know, we’re not going to whore out our IP to everything and dilute it because that will destroy the value of the company. And I think it feels like that’s how Nintendo behaves. And they’re probably just a little too conservative. Um, maybe from a commercial perspective. But you know, Mario, again, like I think when I think about Disney, like the one IP they haven’t bought, that’s like the obvious slam dunk is Nintendo and they, my guess is they can’t because I don’t think Nintendo would be for sale, but I bet they would love to because it just, it fits in there. There, you know? Uh, but I think of Nintendo is like a company, like a Pixar or like a Marvel or like this kind of thing.
Guy Spier (00:58:30):
No, well I guess, yeah, you could have the Meijer Mario ride the super Mario ride would be an amazing ride. Actually. Stop and think about it. It’s possible that they have discussions at Disney about whether it’s wholesome enough. So Disney is all about, you know, family together. You know, if it’s the, if it’s a Disney movie, you don’t have to worry about undue violence, sex or bloodshed. And so they, you know, many big games are played individually and it’s not a family experience. I don’t know if that’s an issue, but I can see how as somebody who’s spent a significant part of the last decade or two desperately trying to figure out how to build moats around the game, and then you see Disney and Disney has far, far more moats that it can build around it’s IP, then the games companies can, it seems, I mean you’re, you’re at the mercy of a very fickle audience when you’re in the gaming business effectively
and games you mentioned, uh, Harley Davidson, um, the games industry has the Harley Davidson problem in a way that Disney does not. So like I can show snow white that was made, I think in 1937 or something. Right. I pull that out. I stream it. My daughter watches it. She loves it, right? Yeah. I pull out the original super Mario brothers made in the eighties and she’s like, what’s this crap? See? So it just, they just don’t hold up in the same way. Right.
Guy Spier (01:00:02):
And defensive pong, my son plays pong on his Apple iPhone. I just want you to know that.
That’s cool. So you know, there, there, there’s probably some something there, but I think, I think it’s harder. And so in the, you know, one of the ways when I think of to talk about investing a little more, like one of the things I think about a lot in investing is like,
Speaker 4 (01:00:25):
You know, I think you read the thing, the suicide contraption thing, but really what it comes from this mentality of life.
Guy Spier (01:00:33):
Well, stop it. Stop. And so you, you sent me, so for the listener, Herman sent me a writeup of an idea called the suicide contraption in which companies have it in which, so tell us what a suicide contraption is. Summarize the paper for us.
Yeah. So I was thinking about it. In some ways it’s exactly creative disruption, but, um, it’s from the perspective of the inside of the company, right? So if you have a company, I’m going to pick on electronic arts because they successfully avoided committing suicide, which I think is amazing. Um, you know, for 15 or 20 years, right? You create a business and that business is basically you have a pipeline where you make products, games on one side, then you figure out how to mass produce them. So duplication, then you have to distribute them. You put them in trucks and they get sent to stores. You need to get good positioning at the retail channels and yet have good relationships with GameStop and Walmart and all those people. And that’s your business, right? So inside the company, you’re going to be hundreds if not thousands of people who have titles like senior supply chain manager, vice president of, you know, retail relations, right?
And they get paid based on how many skews get put on the shelf this season, right? So the whole company is built around that, that structure. And then suddenly along comes like valve and they make a patcher for half-life that they then pivot to be a distributor, a distribution channel for digital games. And the internet is slowly getting up in speed. So people like me, well I could go to the store and buy something or I could just, you know, buy it on steam real quick and stay home. Right. And within a few years, that retail business that you owned and built is now going away and you know, it’s going away, you watch it going away, you can see it happening. But are you going to restructure your, like VP of retail or are you going to hope that the two are going to exist side by side or hope that this digital thing goes away or hope that you can convert to digital quickly enough before you get destroyed? And the answer is you’re going to do B. Right. And when you do that, I think in many times when companies choose B and it’s not even a choice, I think they’re, they’re they, they have to do it in some way psychologically they’re committing suicide. Right? So Polaroid Kodak committed suicide.
Guy Spier (01:03:05):
Yeah, it sounds, it sounded to me when I read it, I was just looking it up. It’s a similar idea to have you read the book, the innovator’s dilemma by Clayton Christianson. And, and by the way, I was just, I’ve got a Harvard business school case that when I get a moment, I want to read it as it’s Netflix in 2011. I mean, it seems to me that Reed Hastings is an extraordinary leader because he’s seen the capacity of Netflix to commit suicide, for example, over sending CDs in the mail. And he stopped it. And he’s taking some really tough decisions more than once, which more than halved the market cap of the company as his investors and others hated it, but he knew it was the right thing to do. I mean, that’s, that sounds extraordinary. Um, so that would be somebody who’s successfully combated suicide contraptions, you know, any other people you have?
Speaker 4 (01:04:02):
well I think, uh, I’m just, I’m trying to think off the top of my head. Like I said, I think both electronic arts and Activision did, you know, they are both companies now that are not in the business of putting, you know, physical media into stores and selling it. That’s not their business anymore. Right. So they navigated it.
Speaker 4 (01:04:25):
You know, I think the reason they were able to survive is because they had, um, they had leadership that was focused on the product more and the distribution second, so they didn’t get confused. Other publishers that focused on distribution more, I think, you know, they have a harder time when you, you know, um, Bobby coat ticket at Activision has been pretty good at buying IP. I mean, they bought blizzard, which was probably one of the best,
Speaker 4 (01:04:52):
IP investments in the history of the gaming industry. Certainly if you were an Activision shareholder, it was a very good thing and it was good for him. So, but I mean that it wasn’t easy. So I think, uh, but I think, um, I think Disney has done a fair amount of it recently. You know, I mean, I feel like for a few years there,
Speaker 4 (01:05:14):
You know, for whatever reason, the people who led Disney were trying really hard to destroy this company. They just could not do it. And eventually Iger came along and he kind of went, Hey, let’s just buy all the great IP and you know, consolidate it inside the Disney umbrella. I say that not because I think it’s obvious because I don’t think it’s obvious and it’s operationally, I can’t even imagine how all that stuff happened and they did it amazingly well. But I think that’s probably another one. I think when you’re, I’ve been thinking a lot about BMW. Um, so what’s BMW? Right? They’re the ultimate driving machine and the direction the car industry seems to be going is no one’s going to be driving anymore. So, um, I’m curious to see how they, if I was at BMW, how would I like, think about that?
You know, because now suddenly the thrill of driving is going to maybe become a very small business. Um, uh, so do I become a very small company? Well, that’s already taken up by Ferrari. Uh, so I don’t know if I do, I compete. So it’s hard. There’s an identity crisis. Um, it’s interesting. And so I think that when I think about the suicide contraptions, what I’m trying to do is find companies where it actually, it’s very hard, like managers aren’t and leaders aren’t in a position very often where they’re forced in there, they’re going to make, you know, forced errors. You know, I prefer people who have to, who destroy the company by making unforced errors. Um, you know, I think I was talking to my wife about this, like I think probably the best business I can, I can see, but it’s too expensive to buy is WD 40, you know?
Yeah. Cause you know, they make this thing as long as there’s hinges, you know, and wheels that get, you know, squeaky people need it. If I invent WD 50 and it’s 10% less, no one’s going to buy it. You know, people use more of it as a, the population increases the price of oil. They can, they can get oil for free now. So, um, and like they don’t have to upgrade their plant. You know about like, they’re like, Oh shit, we need to upgrade our plant this year again, because you know, there’s this new technology in, in some, you know, so you know, if you’re the CEO of WD 40 what you have to do is just, they’re not advertising. It’s not like they have to make this tricky marketing campaign to convince people to buy this cool product. It’s just an amazing business, you know? And so like those things I think are just fantastic, you know, but they usually at a very high premium, they will all right now, but every now and then, I mean you just have to live in hope because either way I would say Herman, it’s a like falling in love
Guy Spier (01:08:16):
in that you only have to fall in love once and so you, you, you don’t have to fall in love that often. And hopefully if you have cash around then you’ll be able to find something. But, you know, forgive me for bringing this up, but, and I haven’t told you yet, but there’s a guy who was famous from the movie, the big short who stopped running money publicly, who has a pretty big position. I understand in GameStop GameStop. And uh, that is a poster boy for, um, disintemediation it seems, uh, I, can you, can you give any insight into what Mike Berry sees and GameStop?
I mean, I can, I can guess, my guess is that what he sees in game stop is that if game stop is trading it, you know, three or $4 a share or whatever, he bought it at maybe six or whatever.
Speaker 4 (01:09:11):
Retail’s not bath dead. Right. It’s not like no one goes to stores at all. I mean right now it’s totally dead, but it wasn’t totally dead a year ago. And
Speaker 4 (01:09:24):
You know, GameStop is trying to pivot to like be sort of a place where gamers hang out. I don’t know if that’s going to work out or not. I skeptical. Um, and then the other thing they’re doing is they’re trying to sell more, um, you know, like non game related gaming paraphernalia, which, you know, that maybe that works. I don’t know. Um, and then of course they still sell. They, their big thing was they were selling used games, pre-owned games, which the games developers and publishers are trying to kill as fast as they possibly can. Right. Cause they don’t get it. They, they sell one physical game and a game stop makes money on it three or four times. And they never see that. So, so there’s no love from the game development community for that. Um, but the one thing that you can’t buy online, uh, and have delivered digitally is hardware.
You have to go get it. Either you get a cent to, you buy it through Amazon or you go to best buy or Walmart. And so this year there’s going to be two major console releases. And when new consoles come out, they’re almost always, uh, under supplied. And then, you know, kids want them to Christmas. And you know, parents are frustrated because they can’t get them an Amazon and they’ll go anywhere. And so I think the thesis for GameStop is though it will be one quarter at the end of this year where their revenue just goes bananas, you know, and people are gonna buy the hardware and you don’t just buy the system, you’re going to buy a few games while you’re there. And I think the likelihood that they shoot the lights out for one or two quarters is probably pretty good. And then maybe in quarter that the end of quarter two, 2021 you sell everything before, you know, people who are chasing the hockey stick realize that it’s, you know, it’s actually not what it looks like. You know, I mean that’s maybe, I don’t know, or maybe maybe he really believes in the turnaround cause he also has a big position in, what is it, Taylor brands or whatever.
Guy Spier (01:11:24):
Yeah. I didn’t look at that. I was just, I, I don’t, I mean I should have done, I haven’t pulled up, uh, 30 enough for him recently if there isn’t even as a 30 enough. But I guess just to sort of like we’ve been, um, it’s always fun to talk to you Herman, but I’m kind of like a, a wrapping up question. Um, so I guess, uh, um, so I, I, so just to summarize, I in a certain way, I mean one of the things that you’re an example of, you’re a living example of the idea that was expressed by Steve jobs in that speech, which is, you know, do the stuff you’re passionate about and if you’re not passionate, stop and find something you are passionate about, which I think is extraordinary advice. And, um, uh, you know, I think it’s good to spend time with you because you become like the people you spend time with and so even somebody listening to this is more likely to follow their passions. You’re more that you, the listener, are more likely to follow your passions having listened to Harmon, but for the next chapter of your life, if you could, if you could explain what it is that you’re trying to optimize, what is the, what, what is, how would you, how will you ma, I mean, actually there’s a book by Clayton Christiansen. How will you measure your life? So I guess I’m asking you that question in a decade’s time, how will you measure your life?
Speaker 4 (01:12:51):
well, I mean, that’s a great question. Uh, so at the macro level, I think,
Speaker 4 (01:12:59):
You know, uh, the two most important, I try to give this to my, give this, give this advice to my kids and my nieces and nephews is like, really the two things you need to get right. If you want to have a satisfying life is you need to find a person that you can spend your life with or be single your whole life. If you can be happy that way. That’s number one. And number two is you have to find, uh, some kind of a job or something that you just love doing. And so my hope is that 10 years from now I still have both of those things. Um, that’s the selfish part. Uh, the other part is I really want to try, and I noticed you doing this a lot more and I can see, I can feel the, the, the um, you know, how powerful it is, which is to try to, you know, um, reach out and add value to more people around me.
You know. So recently I think on LinkedIn I was, I was, I just told people like, Hey, you know, I was in the games industry a long time. I know a lot of people are starting stuff up. If you need any advice, reach out. My only requirement is that you don’t pay me anything. You know, you don’t offer me a job. I’m not looking, I’m simply going to be a sounding board, you know? And some people reached out and they were really appreciative. So that was really fun. So I think doing more of that will be, will be very, um, helpful. I run into a problem where I try, I tend to think too big and it prevents me from doing practical things.
Guy Spier (01:14:34):
Yeah. And we need both and at that. So that’s a great, um, yeah, I have to say that it’s like this idea of growing Goodwill is I think, a wonderful idea and that there’s a, there’s a book that I wrote the forward to called, uh, I think it’s called the joy, the joy of compounding, which goes into that, but, so, um, you know, hyper normal capital, are you open for business if somebody wants to invest, are they, are you available for that?
Yeah, I am available for that. It’s funny that you mentioned that because like, my thought was, no one’s really going to be interested and that’s okay. I’ll take time. Um, it’s very important for me, again, going back to the whole, uh, um, you know, keeping those things that are there, uh, in place is like, it’s really important for me that, um, that we find the right partners so that there’s not, uh, you know, um, there’s not, um, there’s not regret on either side. And so I’m taking it very slow. Um, but yeah, I mean, if there’s, if, if, if I can, if I can find the right set of people and, you know, they, they’re willing to take a gamble. I mean, honestly, like, uh, when I look at the, again thinking about like the games industry, like, uh, you know, why would Mark and Brandon who were two people who’d never made a game before and had no resume, that would indicate it somehow they were able to raise money to make a game. You know, the people who put that money and were in, you know, like Monash says, like it’s fools and friends and family or whatever. Right? Yeah. So there’s a little bit of that. So like, why, why someone would want to invest with me at this point? To me would be mysterious. Maybe after a few years, if things look good, then it starts to make more sense. But of course, you know, that’s not how, then of course you tend to drop off.
Guy Spier (01:16:26):
Actually, I could, I could totally see Harmon, that there are people who have either either worked in the gaming industry or have had interactions with games that you know, who would listen to you talking and they’ll say, you know, that’s the guy whose mind I understand. They can relate to you in ways that they perhaps cannot relate to all sorts of other people. So I, you know, I think that there’s a, there’s a great future there. Uh, if they do want to find you, how do they get in touch with you?
Um, they can email me her minute, hyper normal capital.com or you can go to the website and you know, it’s, it’s just me. There’s nothing, there’s no layers of administration to jump through or anything.
Guy Spier (01:17:05):
And I would tell you that Harmon’s also on Twitter and you’re also on LinkedIn. You’re on all the, all the normal platforms that one can find somebody on. Hey, what a pleasure to talk to you. Thank you for taking the time, Herman. This is really fun. You’re your guests number three or four? I believe so. You’re pretty early on. Yeah. Thank you.
Speaker 5 (01:17:24):
Thanks for having me. Take care.
Guy Spier (01:17:29):
And there we go. So, uh, this looks like it recorded. I’m going to switch this off. I’m going to switch this off.